Purchasing Property in Mexico

MEXICAN LEGISLATION

The Mexican Constitution prohibits foreigners from direct acquisition of land and waterways within a distance of 100 kilometers from any frontier and 50 kilometers from any coast; such regions are known as “Restricted Zones”.

THE LAW TO PROMOTE MEXICAN INVESTMENT AND REGULAR FOREIGN INVESTMENTS

The purpose of this law is to promote Mexican and Foreign investment, this encourages fair and balanced development in consolidating the country`s economic independence. It specifies in which way capital should participate and how, by establishing a trust, foreigners can purchase Real Estate earmarked for industrial and tourism activities.

INVESTMENT IN REAL STATE

For the benefit and security of foreigners wanting to invest in Real Estate located on the Mexican Border or coastal regions, the government has decided to do away with various loopholes that had been used to bypass constitutional restrictions.

The most common of these maneuvers, which was jeopardizing foreign investment, was the Mexican interposition in name only and fictitious contracts, or other legal instruments. The government will take action against such methods but will grant full protection to foreigners who, through trust institution, can invest in real estate in restricted zones under the provisions of the aforementioned law.

INTERVENTION OF TRUST INSTITUTIONS

Through the Ministry of Foreign Affairs, the Federal Government, after hearing the recommendation of the interministerial consultative commission in charge of studying the economic and social implications of specific projects to which the law refers, can authorize a trust institution to act as trustees in acquiring real estate whose beneficiaries are foreigners.

INDUSTRIAL AND TOURISM DEVELOPMENT

The purpose of this arrangement is to accelerate industrial and tourism development in coastal and border zones in accordance with the Mexican Constitution. The law provides that a trust institution can acquire land in such zones acting as trustees for foreign beneficiaries if it is used for industrial or tourism activities.

HOW THE TRUST WORKS

When a foreigner wishes to acquire the right of using and developing a property, he can instruct to any fiduciary institution in Mexico, to purchase it and retain it in trust for a term of fifty years, provided the Ministry of Foreign Affairs grants the necessary permit.

OWNERSHIP OF THE PROPERTY AND RIGHTS OF BENEFICIARY

Upon acquiring a property in trust, the bank becomes its new legal owner, subject to the clauses of the contract granting the beneficiary the rights to use, exploit, rent or sell the property or transfer the said rights to a third party. The formalities involved are straightforward and simple.

RENEWAL OF TRUST

At the end of the trust’s term that, as mentioned before, can be for a term of fifty years, the beneficiary has the following options:

If there is no change in the Mexican Government’s present policy, it is a possible that the trust agreement might be renewed for an additional period of more than fifty years. In case the authorities fail to grant such an extension, the trust will have to be terminated by selling the property.

No matter what the alternative results, the beneficiary’s interests will be adequately protected. It should be pointed out that the beneficiary can at any time during the terms of the trust agreement of at its termination, arrange for the sale of the property to any person legally qualified to purchase the real estate.

STRUCTURE OF THE TRUST

THE TRUSTOR A Mexican citizen or a Mexican corporation with no foreign participation; the original owner of the Real State, it’s the party who places the property in trust.

THE TRUSTEE As indicated previously, the trustee is the Banking Institution that holds the trust over the land for the benefit of the beneficiary.

THE BENEFICIARY The first beneficiary is normally the promoter, who acquires beneficial rights in order to develop the property and sell its beneficial interest to the parties in turn. The final beneficiary is a foreigner, since Mexicans will usually acquire (buy) direct ownership.

ANY FIDUCARY INSTITUTION IN MEXICO REQUIRES THE FOLLOWING DOCUMENTS FOR A TRUST AGREEMENT:

Title of the property (deed).

Map of location of the property.

Receipts of the payment of Real Estate Tax.

Permit of Foreign Affairs. This is obtained by any fiduciary institution in Mexico.